Lenders face ban on using family credit histories

By Sally Pook

12:01AM BST 21 Apr 2004

Banks and building societies are to be banned from using information on a customer's family when deciding whether to lend money.

From November, the use of "third party" information will not be allowed following an agreement between credit reference agencies and their customers, such as banks, mortgage lenders and mail order firms.

At present lenders are able to access the credit history of other people living in the applicant's household with the same surname, such as children or a spouse. This can often raise problems when couples split, as agencies base their information on the electoral roll which is only updated once a year.

It means anyone can be refused credit because of the financial behaviour of a husband, wife, son or daughter, even if a couple is divorced. Credit agencies can also access information about someone with a similar name, or someone with a different surname, if they believe they have been living as part of the household and there is a financial connection.

The new agreement means that lenders will only look at the credit history of the individual applying for a loan, credit card or mortgage and of anyone who is financially linked to them, such as through a joint account or joint mortgage. Some lenders will give people the option to be assessed in their own right, without reference to a spouse's data.

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The system will prevent people who send off for their credit file being able to see information on other members of their family. The Information Commissioner has been involved in discussions with the industry over the third party issue for nearly four years.

Richard Thomas, the Information Commissioner, said: "I recognise that many practical issues have had to be addressed and substantial investment made by the industry but any companies in the credit industry still without a firm timetable for implementing the new requirements should reflect very carefully on their position."

Experian, the credit rating agency, welcomed the move. A spokesman said: "The firm deadline is great news and should be welcomed by consumers and lenders.

"The credit industry is confident of reaching the October deadline. Experian has been working closely with the Information Commissioner's Office, lenders and other members of the credit industry to make this change."